Construction Spending Builds, Thanks to Housing

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home constructionWASHINGTON -- Construction spending jumped in November as builders spent more on single-family homes, apartments and remodeling projects.

The Commerce Department said Tuesday that spending on construction projects rose 1.2 percent in November, following a revised 0.2 percent drop in October. The increase was the third in four months and the largest since a 2.2 percent rise in August.

The November increase pushed spending to a seasonally adjusted annual rate of $807.1 billion, still barely half the $1.5 trillion that economists consider healthy. Analysts say it could be four years before construction returns to healthy levels.

Home construction has begun a gradual rebound and likely added to the nation's economic growth in 2011. The chief reason is that apartments are being built almost twice as fast as two years ago. Renting is the only option for many people who have lost their jobs, their homes or both.

For November, private residential construction increased 2 percent in November to a seasonally adjusted $522.3 billion. It was the fifth consecutive gain.

Single-family construction rose 1.5 percent while multifamily construction, including apartments, rose 1.3 percent. The category that covers home remodeling rose 9.5 percent.

Nonresidential construction was unchanged at an annual rate of $243.7 billion, Spending on hotels and hospitals rose, but those gains were offset by weakness in other areas. Spending on office buildings dropped 1.3 percent and the category that includes shopping centers fell 0.8 percent.

Spending on government projects rose 1.7 percent to an annual rate of $284.9 billion. That followed a 1.8 percent drop in October. State and local construction gained 1.3 percent and federal building activity increased 5.3 percent. But even with those gains, activity in the government sector was down 5.3 percent from a year ago.

The construction industry was hit hard by the housing bust and has had trouble recovering since the recession ended more than two years ago.

Severe budget problems have squeezed state and local governments while the federal government has come under pressure to get control of soaring budget deficits.

Private builders haven't fared much better. While their spending increased, they have scaled back on construction plans and are working from depressed levels.

Builders in November broke ground on homes at a seasonally adjusted annual rate of 685,000. That was a 9.3 percent jump from October and the fastest pace since April 2010.

Builders should start at least 600,000 homes this year. That's up from 587,000 last year and 554,000 in 2009 -- the worst year on record. Still, that's half the number that economists expect in a healthy market.

While construction may be turning around, home sales are still weak. This year will likely end up as the worst for new-home sales in history.

While new homes represent less than one-fifth the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Builders are struggling to compete with weak demand because of still-high unemployment and a glut of homes on the market because of foreclosures and short sales -- where lenders accept less for a house than the mortgage on the home is worth. Those homes are selling for at an average discount of 20 percent, which is lowering neighboring home values.

Copyright 2012 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

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Top 11 Stories of 2011
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Construction Spending Builds, Thanks to Housing

Here are the 11 real estate stories that we judged as the most important of 2011.

Time magazine was onto something when it named "The Protester" as its "Person of the Year." While its editors might have mainly had the Arab Spring and the Occupy Wall Street movements in mind, an offshoot of the economic unrest in the U.S. has been increasing protest and resistance among those already pushed out of their dwellings as a result of the recession, or who find themselves drowning in the debt of their underwater homes.

Also see: When Renters Get Snared in Foreclosure's Web

Two of the markets hardest hit by the housing collapse, Las Vegas and Florida, stirred back to life. The not-so-great news: Much of the run on homes came from bottom-feeding investors --- many of them foreign -- looking for bargain dwellings that they could turn around and rent. Still, that's better than bulldozing them.

Also see: Viewpoint: Feeling Guilty About Buying a Foreclosure?

While record low interest rates didn't do much to spark homes sales, it did launch another run on mortgage refinancing, with refis making up about 80 percent of the mortgage applications in recent months.

Also see: Barbara Corcoran on Refi Do's and Don'ts

At year's start, the government backed mortgage giants Fannie Mae and Freddie Mac already had set a record for the largest bailout of the financial crisis, at $150 billion and counting. This month their two former CEOs (pictured)  became the highest profile individuals to be charged in connection with the economic meltdown. They and four others are accused of defrauding investors by understating the amount of high risk mortgages held by the lending companies. And just last week California's attorney general sued the Congressionally-mandated lending companies in connection with 12,000 foreclosed properties there. It was also the year when politicians from both sides of the aisle were calling for an end to Fannie Mae and Freddie Mac. A question for 2012, and maybe beyond: With about half of the entire U.S. mortgage market split between them, what's the alternative?

Also see: Will FHA Be the Go-To Source for High-Cost Mortgages?

Looking for a glimmer of good news in the housing market? The U.S. Census bureau reported this year that there was a 4 percent rise in the number of households that are renting. Maybe that's why the recent, modest uptick in homebuilding comes in good part from multifamily construction. So while that's good news for builders and some investors, it's maybe not so good news for the average household -- since it's believed that foreclosures and short sales are responsible for putting more people in rentals, while probably making others gun-shy about buying, even if they could qualify for a loan.

Also see: Farewell Fannie and Freddie, Hello Renter Nation

While this year saw a decline in the number of Americans living in their own homes, with many of them being forced out by short sales and foreclosures, still more might have been feeling stuck with what they had. The Census Bureau reported that U.S. mobility hasn't been this low since the late 1940s, when it first started following that trend. Along with a reality check on the dream of the owning one's own home, it challenges Americans' view of themselves as exploring new frontiers. In 1951, the percentage of Americans who moved reach its high of 21.2. In the most recent count, that's dropped to 11.5 percent.

Also see: Poll: Baby Boomers Willing But Unable to Move

At the end of one of its worst years ever -- and following one that was even worse -- the homebuilding industry saw reason to feel encouraged as the number of new homes and construction permits increased in October. While demand is still low and far under the amount that economists say is needed for a healthy market, homebuilders were expressing optimism. The housing-start statistics got their biggest boost from multifamily construction. Another sign that we're increasingly becoming a nation of renters.

See: Buying New Construction Homes, the Pros and Cons [Video]

Just when we thought interest rates on 30-year mortgages couldn't get any lower the fixed-rate dropped below 4 percent for the first time in a half a century. (That's when economists starting tracking this number.) What's more, the Fed announced this year that it planned to keep interest rates at record lows for the foreseeable future. Though that cheap money was intended to spur investment in housing, it didn't do much, with some speculating that it might even be keeping buyers on the sidelines with the expectation that there's no rush to purchase.

Also see: Are Low Mortgage Rates Killing the Housing Market?

Pick your program: HAMP, HARP, EHLP or 2MP, the Obama administration's efforts to rescue underwater homeowners all seemed to do too little and for many arrived too late. Some blamed government ineptitude while others put it on the reluctance or outright resistance of banks to participate. And it's not like Republicans offered much in the way of alternatives. As Americans headed into an important election year, the continuing housing crisis seemed to receive scant attention from either major party.

Also see: The Mortgage Fix That Can Save the Economy

Home prices and values sunk deeper in 2011 with a year-over-year price drop in the third quarter of 3.9 percent, according to the Case-Shiller Index, and were expected to be down 1.57 percent in the last quarter. They were down by for the year by 0.4 percent, as of September. Meanwhile, home values were expected to drop by 3 percent, or about $700 billion (though that's about a third less than they did last year). And if you think prices are already in the cellar, brace yourself for another drop in 2012, say a panel of experts surveyed by Zillow, who add that then or in early 2013 prices should really, truly hit bottom (they think). On average, home values have fallen about 24 percent in the past five years.

Also see: Housing Market 2011: Highest Peaks, Lowest Valleys

It's hard to overestimate the impact of the foreclosure crisis. There's its incalculable emotional and economic distress, along with its continuing drag on a recovery, which not only drives everyone's property values down but obstructs new construction. Then there are the tighter lending practices that banks have adopted in its wake, and the fast-and-loose processing of mortgage documents that spawned the robo-signing scandal. You can add to this witch's brew the nationwide investigation of the scandal, and the daunting prospect that, if and when there's a settlement, even more foreclosures are expected to come on the market.

Also see: Mortgage Lender Dispute? Try Consumer Bureau's New Hotline

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